Friday, March 31, 2006

SC 13E3 filings

Here are my notes on some recent SC 13E3 filings:

Pegasus Solutions, Inc.
Merger valued at $9.50 a share. Currently trading at $9.39.
Yadkin Valley Company
1-for-50 reverse stock split valued at $78.00. Currently trading at $97.50 a share.
Asconi Corporation
1-for-30 Reverse Stock Split valued at $1 a share. Currently trading at 30 cents a share.
Badger State Ethanol, LLC
Reclassification of Class A member units to Class A-1 member unit for holders of fewer than 20 units. I can't find any trading information on the units.
The Sports Authority, Inc.
Merger valued at $37.25 a share. Currently trading at $36.98.
Foodarama Supermarkets, Inc.
Merger valued at $53 a share. Currently trading at $52.
Masonite International Corporation
Went private in the spring of 2005. I think this is a bug in the SEC's script.
Obsidian Enterprises, Inc.
Went private on March 17. (Timothy S. Durham is also related to this transaction.)
Scheid Vineyards Inc.
1-for-5 Reverse Stock Split valued at $9.25. Currently trading at $6.64.
Stratford American Corporation
Merger valued at $0.80 a share. Currently trading at 78 cents.
Instrumentation Laboratory S.p.A.
Tender offer valued at U.S.$0.98 per ADS. Currently trading at 50 cents.
Lafarge North America Inc.
Tender offer valued at $75.00 per share. Currently trading at $83.86.
Cruzan International, Inc.
Went private on March 22.
Rogers Wireless Communications Inc.
Went private in 2004. Another bug, I think.
William Lyon Homes
Tender offer valued at $93.00. Currently trading at $97.30.
Chiron Corp.
Tender offer valued at $45 a share. Currently trading at $45.70. This is an interesting case. Novartis is trying to by Chiron, which made news recently because it is major supplier of flu vaccine. But it isn't clear how shareholders will vote, since two proxy advisory services covering the deal are split.

These notes cover March 20 to March 30, and as you can see, there aren't any real prospects here. Most of these filings cover tender offers and mergers, which are too competitive. Anyone can make money if they guess the outcome correctly. Yadkin Valley Company is trading (very thinly) above the offer price. Asconi Corporation would be only be worth $29 if someone gave you 29 shares, so the commission would kill me. Scheid Vineyards pays out only $37. So far, I don't see any worthwhile deals.

Thursday, March 30, 2006

Raytheon raises its dividend

Raytheon announced that it is raising the quarterly dividend to 24 cents a share. Last year it was 22 cents and for several years before that it was 20 cents per share per quarter. The new rate pushes the dividend yield over 2% at current prices, which isn't great on its own. But the new trend toward increasing the dividend is very encouraging. One the reasons I feel good about Canon, is that every 6 months management raises the dividend a notch. Giving out cash is not only very good for shareholders, it signals that management is comfortable with the future of the business.

SEC webpage hack

First, I'm using definition 3. a., not 3. b.

Easily the most difficult part of investing in reserve split cashout situations is finding the SEC filing. Companies that intend to "go private" initially file a SC 13E3 ("Going private transaction by certain issuers"). Later they might file a SC 13E3/A (" [Amend]Going private transaction by certain issuers"). Often those filings refer to either a SC TO-T ("Tender offer statement by Third Party") or a PRER14A ("Preliminary Proxy Soliciting materials") which contain the details of the transaction. Normally, companies that are merging or buying out all outstanding shares are less interesting than reverse splits. All of this takes some digging.

Fortunately, the SEC offers an interface to recent filings, but the menu only goes back five business days. But if you change the URL, you can see filings any number of days old. Today's 13E3 filings are: The ones filed two weeks ago are:

The next step is to search through the filings for good or potentially good deals. Since the same companies might amend their 13E3 filings dozens of times, it's good to take notes so that you don't duplicate research.

Wednesday, March 29, 2006

Major Automotive transaction completed

I bought Major Automotive on February 28 for $1.75 a share and received $1.90 a share this morning. After accounting for commission (on the purchase), I made $129.90 in 29 days. If I could make this transaction on a continual basis, I'd earn 144% a year.

Of course, the problem is that there aren't enough of these situations and they aren't big enough to constantly do them on a large scale. Which is just as well for me, since if they were, the opportunities would disappear.

Wednesday, March 08, 2006

Major Automotive goes private

I'm one step closer to collecting a quick $128 profit according to this 8-K filing.

Friday, March 03, 2006 - Oracle? Buy, sell or snooze?

I think Oracle might be undervalued again. As you can guess from the title - Oracle? Buy, sell or snooze? suggests that Oracle is sleepy stock that isn't worth pursuing. That may be (certainly it has been true for last year or so). Let's go over Matt Krantz's arguments step by step.

"Step 1: Measure the stock's risk and reward."

Beta is the measure of how a stock's price moves in comparision with the overall market. According to Oracle's beta, the stock is extremely risky. (It also suggests that Oracle isn't a sleepy stock.) This chart illistrates the risk.

I think most people would be happy with this sort of risk, but it's obvious that if you bought at the wrong time (during 2000) you would have lost a ton of money. On the other hand, if you bought at some of the right times (not during 2000), odds are good you would have come out ok. (I originally bought in 2002, so I'm feeling pretty good about Oracle right now.) If you know how to evaluate Oracle, high beta is actually a plus.

"Step 2: Examine the stock's earnings multiple."

According to the article, Oracle looks pretty good from the P/E ratio standpoint. "But even this should give investors pause, because it shows that Oracle's profitability (defined by return on equity) also has been declining sharply. This is not an encouraging sign." As a matter of fact, since its peak in 2000, ROE has fallen from 97.5% to 26.6%. For comparision, Microsoft's ROE peaked in 1997 at 35.3% and fell to 10.9% for 2004. It's now at 25.5%—a bit less than Oracle. Let's just say, I'm not discouraged.

"Step 3: Calculate the company's value using forecasted future cash flows."

Using the discount cash flow tool at I find that is worth somewhere between $11.50 (if you take beta into account) and $13.18. The key assumption is a 12.2% growth rate over the next five years. I think this growth rate is possible, even likely, but I'll talk about why in a moment. Since Oracle is currently priced around $12.80, I'd say it's overpriced if you think beta is a good proxy for risk and fairly priced if you don't.

"Step 4: Check the USA TODAY Stock Meter score."

To be honest, I don't have any idea what this adds to the argument. I tried out a few other stocks to see what their "USA TODAY Stock Meter score" might be, and most companies seem to be in the 3.0 region. I guess I'm not sure what it tries to measure.

So the real question is will the aquistions of PeopleSoft and Siebel provide enough extra earnings to make Oracle's current price a bargain? I think Oracle paid too much for that to happen from cost-cutting alone. As a shareholder, I'm betting that there will be more opportunities for Oracle to sell expensive bundles to companies as a result of these aquisitions. I see Oracle in much the same situation that Microsoft was in around 10 years ago.